SINGAPORE (Jan 10): It is the start of 2020 and already, the Singapore Exchange Regulation (SGX RegCo) is reforming the listing requirements and regulations that govern locally-listed companies.
At a recent briefing, chief executive Tan Boon Gin says the regulatory arm aims to make these changes more “targeted” and “surgical”. This is to ensure that companies are not “over-burdened” while non-compliant companies receive more attention and are stopped as early as possible in their “malfeasance”, he adds.
To that end, SGX RegCo will apply quarterly reporting (QR) requirements only for companies associated with so-called “higher risks” from Feb 7. This includes companies that have received a disclaimer of opinion, adverse opinion or qualified opinion from its auditors on its latest financial statements.
These changes will also apply to companies where auditors have expressed a material uncertainty relating to going concern on its latest financial statements. And if SGX RegCo has regulatory concerns with a particular company, the latter will also have to report its financials on a quarterly basis. Examples of such concerns include material disclosure breaches or instances where the firm faces issues that have material financial impact.
That aside, SGX RegCo will also strengthen the continuous disclosure requirements in areas that are of “high investor interest”. This will also take effect on Feb 7. For example, SGX RegCo will have powers to deem a person or entity an “interested person” with respect to interested person transactions (IPTs). The regulator will also have the powers to aggregate separate IPTs entered into during the same financial year and treat them as if they were one transaction, in appropriate circumstances. Secondly, SGX RegCo requires a “competent” and “independent” valuer to be appointed for significant asset disposals.
In addition, SGX RegCo also requires companies to make additional disclosures for rights issues. This includes a board statement on why the rights issue is in the company’s interest, particularly if the company conducts a rights issue within one year from its previous equity fund-raising. SGX RegCo expect companies to disclose and gain shareholder approval for the provision of significant financial assistance – to third parties – which is not part of the company’s ordinary course of business.
Furthermore, the regulator is making explicit that disclosure obligations apply not just to materially price sensitive information but also trade-sensitive information, which is defined as information that must be disclosed to avoid the establishment of a false market in the company’s securities. Moreover, SGX RegCo has set out its expectations on companies’ handling of material information. This includes making immediate announcements when there is a change in the issuer’s near-term earnings prospects or ongoing developments.
According to SGX RegCo, these rules were the result of public consultations conducted in 2017 and 2018 as well as discussions with stakeholders. “Ultimately, the objective of regulation must be to ensure that companies can grow sustainably and investors can partake in that growth,” Tan tells reporters on Jan 8.
So what is the immediate impact of the risk-based approach to QR? Based on SGX RegCo’s criteria for companies associated with higher risks, about 100 companies are required to continue with quarterly reporting, says Michael Tang, SGX RegCo’s head of listing policy & product admission. Of these, about 60% are those that have a modified opinion by auditors; 30% with going concern issues; and the remainder 10% with regulatory concerns, he notes.
The Singapore Exchange (SGX) will publish a list of companies required to do QR on Feb 7. This list will be updated on a quarterly basis. Companies outside the list can continue to report on a quarterly basis if they wish to do so but it is no longer compulsory. For companies that pay dividends on a quarterly basis, QR is required as per listing rules, adds Tan.
Market observers who spoke to The Edge Singapore say they welcome the risk based approach to QR. Matthew Ong, president of the Association of Listed Companies, says it is a step forward as the market had called for these changes for some time now. Companies not associated with higher risks will stand to benefit from lower compliance costs, he adds.
Agreeing, Andrew Lim – group chief financial officer at CapitaLand – adds: “This is in line with current practices in many international jurisdictions. We believe this will encourage investors to focus more on the sustainability of our earnings, and to take a longer-term view of our business.”
While commending the move, Associate Professor Mak Yuen Teen of the National University of Singapore Business School hopes that it will be sufficiently “nuanced” to capture those companies where the risks to minority investors are high.
“The devil is in the details of implementation and the mitigating measures to address the risk of doing away with it for companies that are currently required to do it. So what companies are assessed to be high risk and what mitigating measures are in place are important,” he explains.
While positive, joint managing partner of TSMP Law Corporation Stefanie Yuen Thio adds that such a move would only address a troubled company on an “ex post factor” basis. This could be “too late” if the company was already in trouble before it came to the attention of the auditors, she adds.